U.S. on path to be largest oil producer

In the latest confirmation of what is perhaps the most stunning energy-related development in decades, the Paris-based International Energy Agency predicts the United States will become the world's top oil producer by 2020. IEA says the same advances in hydraulic fracturing technology that recently unleashed the shale gas revolution will do the same for domestic oil production unless government steps in at the behest of environmental activists.

The IEA report, World Energy Outlook 2012, concludes that in just a few years the United States will be so awash in domestically produced oil it will surpass Saudi Arabia in oil production. Moreover, by 2030, North America as a whole will become a net exporter of oil.

Revolutionary advances in hydraulic fracturing (“fracking”) and horizontal drilling are making this dramatic turnaround possible, observes IEA. These technological advances have enabled energy companies to inexpensively unlock vast amounts of tight oil and natural gas in shale formations that were previously considered economically impractical for production.

According to the IEA report:

“The recent rebound in U.S. oil and gas production, driven by upstream technologies that are unlocking tight oil and shale gas resources, is spurring economic activity – with less expensive gas and electricity prices giving industry a competitive edge – and steadily changing the role of North America in global energy trade. By around 2020, the United States is projected to become the largest oil producer (overtaking Saudi Arabia until the mid-2020s) and starts to see the impact of new fuel efficiency measures in transport. The result is a continued fall in U.S. oil imports, to the extent that North America becomes a net oil exporter around 2030. This accelerates the switch in direction of international oil trade towards Asia, putting a focus on the security of the strategic routes that bring Middle East oil to Asian markets. The United States, which currently imports around 20 percent of its current energy needs, becomes all but self-sufficient in net terms.” Currently, the United States produces 10.1 million barrels of oil per day, which is the third most in the world.

A few days after IEA released its report, the U.S. Energy Information Administration, or EIA, announced U.S. oil production had reached its highest level in nearly 15 years. EIA reported the states with the largest increases were Texas, thanks largely to the lucrative Eagle Ford shale formation, and North Dakota, thanks to the oil-rich Bakken shale.

Recent developments in North Dakota illustrate the impact of technological developments in hydraulic fracturing and horizontal drilling. According to the North Dakota Department of Mineral Resources, oil producers in the state increased production nearly tenfold in the past decade. North Dakota, which once was an oil-producing afterthought, now produces more oil than OPEC nation Ecuador.

The one dark cloud hanging over the oil and gas boom in the United States is the possibility the U.S. Environmental Protection Agency (EPA) will seize regulatory control over fracking during President Obama's second term. Fracking is currently regulated by state environmental agencies. Because the geology and hydrology of shale formations differ not only from state to state but also within states, questions have been raised about how a Washington-based, multilayered bureaucracy like EPA can regulate fracking as efficiently and safely as state agencies do.

Daniel Simmons, director of state policy at the Institute for Energy Research, worries the government will step in to stifle the game-changing technological advances reported by IEA.

“For the last century, we have heard time and again that the United States is running out of oil. We didn't run out of oil, thanks to the ingenuity of the American entrepreneur,” Simmons said.

“One critical component of this shale oil and gas boom is that it began in the United States on private and state lands, not in foreign countries and not on federal land. On private and state lands, creative people are able to innovate, while staying within the regulatory structure established by state environmental agencies. As a result, U.S. oil and gas production is soaring,” Simmons explained.

“However, this may no longer be the case going forward if federal regulators step in and shut fracking down.”

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